Overdraft protection coming ... at a snail's pace

As we told you earlier, the Federal Reserve just announced it would begin reigning in the scourge of debit-card users nationwide: overdraft charges. The good news is that the new ruling will prohibit banks from foisting this so-called protection on customers automatically; instead, consumers will have to voluntarily sign up (don't all line up at once, now!) The bad news: It's going to be another eight long months before this relief comes.

The government is making Americans wait until July 1, 2010, to get the relief they've been literally begging for, even though Federal Reserve chairman Ben Bernanke called the new ruling "an important step forward in consumer protection."

Lauren Bowne, a staff attorney at Consumers Union, called the long wait time a "big downside" in an email to Walletpop, adding that the Fed has been considering regulating overdraft charges since May 2008 -- a year and a half ago. Bowne said her organization pushed to have the protection implemented in no more than 90 days, but that suggestion was overruled.

Unfortunately, unlike the push in Congress to enact the credit-card reform sooner, no such early relief is likely to come in the case of overdraft protection. Consumers Union's Bowne says two Congressional bills that address overdraft protection aren't as comprehensive as the Fed's ruling and wouldn't go into effect until a year from now -- three months after the Fed regulation will have kicked in.

Why is overdraft reform going to take so long? In the case of credit-card reform, banks pleaded for a long lead time because they said they needed time to implement the changes in their computer systems. Instead, they used that leeway to increase fees and rates. It's anybody's guess if we can expect more of the same with regard to overdraft charges, but this blogger wouldn't be surprised to get a letter from her bank in the coming weeks detailing an increase in overdraft fees.

Is there anything ordinary Americans can do to protect themselves until the regulation kicks in next July? Sadly, not much, except to not let your account lapse into default. The silver lining, though is that a few big banks have started reducing -- although not eliminating -- their overdraft charges. Consumers Union does offer details on its web site; check out the details here.

The rest of us will just keep a close eye on our bank balances -- and wait impatiently for July.